Malaysia National Money Laundering and Terrorist Financing Risk Assessment 2013

1 National ML/TF Risk Assessment (NRA) Malaysia’s National Risk Assessment

2 National ML/TF Risk Assessment (NRA) Cooperation and collaboration are vital for an AML/CFT regime to be effective Four pillars supporting an effective AML/CFT Regime:
Ultimate Objective:
Protect Financial System and Broader Economy from the Threats of Money Laundering and Terrorist Financing 3. Effective financial intelligence and enforcement 2. Effective implementation of preventive measures by reporting institutions Foundation:
Understanding of ML/TF Risks – Identifying threats, vulnerabilities and consequences (impact) to the country and broader economy 4. Strong domestic and international cooperation 1. Comprehensive legal framework

3 National ML/TF Risk Assessment (NRA) Purpose of NRA To identify, assess, and understand key money laundering / terrorist financing threats and vulnerabilities facing the country. Identification ML/TF trends and pattern Determine ML/TF threats and vulnerabilities To apply appropriate control measures to mitigate the risks Changes to anti-money laundering/counter￾financing of terrorism (AML/CFT) policies and framework Inputs towards the development of AML/CFT Strategic Plan Assist in the allocation and prioritization of AML/CFT resources The FATF Recommendations Application of AML/CFT measures commensurate with the identified risks Risk based approach is the central for AML/CFT measures Outputs:

1. NRA
2. Sectoral assessment
3. Other risk assessment
4. Statistical analysis
   Outputs:
5. Amendment to law
6. Revision of guidelines/policies
7. Guidance to reporting institutions
8. AML/CFT Strategic Plan
9. Manpower review, budget
   allocation

4 National ML/TF Risk Assessment (NRA) Risk and Context FATF’s new assessment methodology focuses on:
RISK MATERIALITY CONSEQUENCES Understanding of risk and more importantly, the effectiveness of risk mitigation measures will be key to the MEE and ratings Threats Vulnerabilities INFLUENCED BYCountry situation (e.g. economic and financial) Structural elements (e.g. geographical location) Other contextual factors (e.g. maturity of financial sector)

5 National ML/TF Risk Assessment (NRA) Scope of NRA Economy Legal Geographical FIs & DNFBPS NPOs LPs Domestic Crimes Sectors’ Vulnerabilities Country’s Attractiveness & Vulnerabilities Threats Vulnerabilities Foreign Crimes Note:

1. FIs Financial Institutions
2. DNFBPs Designated Non-Financial Businesses & Professions
3. NPOs Non-Profit Organizations
4. LPs Legal Persons
   Terrorism Financing

6 National ML/TF Risk Assessment (NRA) Methodology of NRA Domestic Crime Threats Foreign Crime Vulnerabilities Economy Legal Geographical FIs & DNFBPS Non-Profit Organizations Legal Persons Terrorist Financing

n/a

Statistical
Data
Expert
Views
Independent
/External
Reports
Perception
Survey

Economic Geographical Legal

• Highly cash-based economy
• Well diversified financial sectors & high integration
  with international financial markets
• High existence of non-bank remittance transfer
• High international trade - Prone to trade-based ML
• High % of informal economy
• Large volume of physical movement of currency
• Porous border – easy
  movement
• Lack of border control
• Gaps in maritime security
• High arrival of tourist
• Knowledge & understanding of judiciary
• Rotating judges
• Gap in existing framework of fin. crimes
  enforcement
• Poor controls & accountability framework
  Influenced by Country’s Vulnerabilities Factors NRA Result – Relationship between Threats and Vulnerabilities Banking Casino MSBs Tax Crimes Drugs Trafficking Corruption Smuggling Frauds Crimes that pose high ML threat – generating potential illegal funds Sectors that are highly vulnerable to ML

1. Huge financial size / High
   volume of transactions
2. High accessibility
3. Attractiveness to ML

• Cash intensity
• Store of values
• Fund transfer facility
• Cross border element
• Various delivery channels

4. High Incidents of ML going
   thru the sectors – e.g.
   STRs, investigation 1. High incidents and proceed generated 2. Perceived as high extent & impact
5. Conform with int./independent reports
   Exploiting

8 National ML/TF Risk Assessment (NRA) IMPACT LOW MEDIUM HIGH EXTENT OF THREATS HIGH MEDIUM LOW

• Fraud
• Smuggling (incl. customs &
  excise duties evasion)
• Drugs
• Tax crimes
• Corruption & bribery
• Forgery
• Theft & robbery
• Counterfeiting of currency
• Organized crimes
• Human trafficking &
  migrant smuggling
• Counterfeiting & piracy of
  products
• Insider Trading & market
  manipulation
• Murder
• Environmental crimes
• Extortion
• Kidnapping
• Sea piracy
• Sexual exploitation
• Arms trafficking
  Domestic Threat – Rank of Prevailing Crimes Terrorism Financing Level of Risk: High Medium Low

9 National ML/TF Risk Assessment (NRA) 9 ML Risk – Financial Sectors Likelihood POSSIBLE LIKELY VERY LIKELY Extent of VulnerabilityHIGH MEDIUM LOW

• Banking (incl. BSN,
  Bank Rakyat, Agro
  Bank)
• Money Changers
• Non-bank remittance
  service providers
• Stockbroking
• Leasing & Factoring
• Life insurance
• Money Lenders
• Non-bank cards
• E-money
• Fund mgt. co / unit
  trust co.
• Offshore Banks
• Non-Bank Deposit
  Taking Companies
• Development Fis
  (SME Bank, Bank
  Pembangunan,
  EXIM Bank)
  Inherent risk – without consideration of control measures Level of risk: High Medium Low

10 National ML/TF Risk Assessment (NRA) 10 ML Risk – Non-Financial Sector Likelihood POSSIBLE LIKELY VERY LIKELY Extent of Vulnerability HIGH MEDIUM LOW • Casino • Gaming Companies • Jewellers • Accountants • Offshore Trust • Company Secretaries • Real Estate • Trust Companies • Lawyers • Pawn Brokers • Notaries Legal Entities* – onshore / offshore Non Profit Orgs. Inherent risk – without consideration of control measures

• Companies and partnerships
  Level of risks: High Medium Low

11 National ML/TF Risk Assessment (NRA) Inter linkages Between NRA, Sectoral and Institution’s Risk Assessment NRA Risk assessment Reporting institutions may be guided by the results of the National Risk Assessment issued by Bank Negara Malaysia in conducting their own risk assessments. Country Level Institutional Level Compliance Program

• Oversight
• Training
• Audit
  CDD STR - Red flags
  Transaction Monitoring
  Sectoral
  Level
  Sectoral Level Assessment
  Examples:
  Banking – commercial, investment, Islamic Securities – unit trust, stockbroking MSBs – MC, MR, remittance Input :
• Data
• Observations
  Communication
  & Guidance

12 National ML/TF Risk Assessment (NRA) Reflecting NRA Findings into Compliance Programs

• Higher risk identified to be considered as higher risk indicators in FI’s risk
  assessment
• Development of specific red-flags for the crimes identified
  – LEAs to be working with FIs
• Classification of products/services that prone to the identified crimes
  – Proposal on sharing of accounts suspected to be used as mules accounts
• Tailored training for specific function that prone to the identified crimes
  – E.g. trade finance officer smuggling / tax evasion Crimes Potential products/services & Methods (e.g.) Frauds Deposits (mule account) , wire transfer Drugs Deposits, wire transfer Corruption Investment banking, private banking (incl. proxy) Smuggling Trade finance, deposits Tax crimes Trade finance, private banking (incl. proxy)

13 National ML/TF Risk Assessment (NRA)

1. Reduce overall crime in the country.
2. Increase government revenue and reduce leakages in the economy.
3. Preserve the integrity and reputation of our financial system.
4. Create conducive environment for businesses and investors, and
   support Government’s economic transformation agenda.
5. Strengthen Malaysia’s reputation as a country committed to combat
   money laundering and the financing of terrorism and proliferation. CONCLUSION :
   NRA is a tool to facilitate our understanding of ML/TF risks and effective AML/CFT regime is critical for Malaysia to…

14 National ML/TF Risk Assessment (NRA) 14 Thank you